Our Strategy

In 2020, MegaFon completed its 2017–2020 strategic cycle, implementing the planned initiatives. Despite the negative impact of the COVID-19 pandemic on key performance indicators in 2020, we were able to build a solid platform for driving future growth and achieving new heights.

MegaFon enhanced its core customercentric capabilities

1

LTV Growth

+34%
2

Customer-centricity

  • Big Data
  • CVM
  • Customer experience

3

Agile

4

Partnership projects

During the strategic cycle, we were able to meet our key objective and increase LTV1 by 34%. In addition, prior to the pandemic, between 2018 and 2020, we achieved a CAGR of 2.7%2 in OIBDA growth and demonstrated strong financial efficiency.

MegaFon enhanced its core customer-centric capabilities:

  • Big Data. We have enhanced our expertise in analysis of customer needs, allowing MegaFon to create relevant and demanded products
  • Customer experience.In recent years, we have made a significant turnaround in our subscriber’s engagement through studying and improving customer paths, increasing product quality based on customer satisfaction indicators, and working with a contact policy and other areas managed by our Customer Experience Department
  • CVM3. We have developed a tool to build tailored offers based on the analysis of customer preferences

We launched the Company’s business transformation with a transition to work in Agile squads as its core element, which has already proved effective. Tribes were formed – several Agile squads united by a common mission: a segment, a channel or a product. This flexible approach enables us to address tasks more efficiently: employees can develop faster while businesses can offer services that are more customer-focused.

Throughout the strategic cycle, we launched multiple projects in partnership with market leaders. The key projects implemented in 2019 and 2020:

  • Establishing, together with Alibaba Group, Mail.ru Group and RDIF, a joint venture, AliExpress Russia
  • Developing joint projects with ICS Holding
  • Acquiring a stake in the START online video streaming service

Other efforts undertaken in early 2021:

  • MegaFon, together with Mail.Ru Group, USM Group, Ant Group and RDIF, signed documents to establish two joint ventures offering digital payment solutions and financial services to help consumers save when paying for services and goods in the rapidly growing e-commerce segment
  • MegaFon and USM Telecom teamed up with partners from Uzbekistan to establish a joint venture, Digital Holding, set to become the technology leader in Central Asia’s largest telecoms market. The project is aimed at creating a telecommunications infrastructure in line with international standards to expand access to communication services in Uzbekistan and improve the service quality, as well as introducing advanced technologies and systems in information security, data storage, labelling and tracking of certain types of goods

MegaFon enhanced its core customer-centric capabilities:

Big Data

Customer experience

CVM❸



Impact of the COVID-19 pandemic

The 2020 pandemic proved a major challenge for MegaFon’s business and had a significant impact on the Company’s plans to achieve key targets. Nevertheless, we were able to largely offset the negative effects of COVID-19 due to our increased efficiency, flexibility and fast responses.

Service revenue was down by 2.5% in 2020, primarily due to a decrease in subscribers’ and businesses’ mobile spend, as well as a sharp decline in the number of new subscriptions. However, the decrease was reduced by the growth in data revenue, primarily digital revenue, on the back of increased demand for MegaFon services driven by the lockdown and working from home.

Lower revenues drove a 3.8% decline in OIBDA4 in 2020. However, we were able to largely offset the decline by cutting sales and marketing costs and general expenses, and improving process efficiency. Moreover, in 2020, we increased our OIBDA margin.

As a result of active loan portfolio management, we were also able to reduce total debt and maintain our net debt to OIBDA ratio at the 2019 level.

To a large extent, we were able to mitigate the negative impact of the pandemic by implementing strategic projects to become even faster and boost the Company’s flexibility, which enabled us to promptly shift more than 14,000 employees to work from home without affecting business processes.

We launched the transition to Agile management schemes even before the pandemic, and were able not only to apply them in the face of uncertainty but also to successfully scale up these practices.

Target performance indicators and progress in 2018–20205

  Stated 2018–2020 targets, % 2018 actual results, % 2019 actual results, % 2020 actual results amid the COVID-19 pandemic, %
Service revenue 2–5 4.7 1.2 –2.5
OIBDA  3–6 0.2 5.3 –3.8
Net debt/OIBDA ≤ 2.0х 2.37х 2.45х 2.46х  
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Reaching new heights

Having completed its strategic cycle, MegaFon intends to move forward towards new business heights and focus on creating value for the Company’s key stakeholders: customers, employees and shareholders. Our goal is to make them all happy. We have identified three key priorities:

Happy customer

One of MegaFon’s key focus areas is customer satisfaction. To attain this goal, we are continuously improving customer experience and tailor our offerings to our subscribers’ needs. By making the customer happy, the Company gets an active subscriber while the customer gets the best partner for life, willing to offer them the most relevant products and services. In 2020, we launched a new tariff line, #NoOvercharges, to drive our subscribers’ satisfaction.

Indicators to measure satisfaction:

  • NPS6

  • Customer base

Happy employee

Our people are our key asset. And only a happy employee will be able to keep customers happy. We promote employee development by introducing Agile management methodologies. Our critical tasks are to empower our people to be significant and useful, and to rally all MegaFon employees around our common goals.

Indicators to measure satisfaction:

  • eNPS7

Happy shareholder

The third key priority is the satisfaction of our shareholders. We will pursue our efforts to increase cash flow and OIBDA. MegaFon aims to become the market leader, not only meeting our shareholders’ expectations but anticipating them.

Indicators to measure satisfaction:

  • Organic cash flow

Our competitive advantages

1

Digital ecosystem

We continue to build our capabilities to create Russia’s largest digital ecosystem through partnering with the industry’s leading players. We also have a ‘technology sandbox’ for start-ups and incorporate solutions by more mature vendors into our product mix on mutually beneficial arm’s length terms, or use such solutions to speed up our internal digital transformation.

2

Infrastructure

MegaFon is building upon its existing technological advantages to achieve leadership in digital services for customers. Our objective is to be the data provider of choice for digital customers based on their recognition of the quality of our service. We are developing our infrastructure in line with major global trends, capitalising on our leadership by number of base stations.

3

Continuous efficiency improvement

We have in place a process to manage initiatives consistently throughout their lifecycle, from development to execution. In addition to maximising financial returns, we aim to accelerate and simplify our internal processes while increasing employee satisfaction and productivity.

  1. Lifetime Value (LTV) is an internal estimate of the present value of the future cash flow per customer throughout the entire period of his or her relationship with MegaFon.
  2. OIBDA grew on average by 0.9% annually, including 2020. Excluding the effect of IFRS 16.
  3. Customer Value Management (CVM) is a customer value management system.
  4. Excluding the effect of IFRS 16.
  5. Target values are based on average growth rates and do not reflect possible negative implications of regulatory changes and one-off transactions. All values exclude the effect of IFRS 16.
  6. NPS stands for Net Promoter Score.
  7. eNPS (Employee Net Promoter Score) is the employee satisfaction index.
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